UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
[X] Quarter Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Period Ended March 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the transition period from
__________ to __________
Commission File Number 0-11179
----------------------
VALLEY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
New Jersey
(State or other Jurisdiction of
incorporation or organization)
22-2477875
(I.R.S. Employer Identification No.)
1455 Valley Road, Wayne, New Jersey 07474-0558
(Address of principal executive offices)
201-305-8800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (No par value), of which 42,251,141 shares were outstanding as of
May 1, 1997.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
March 31, 1997 and December 31, 1996
(Unaudited)
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996 4
(Unaudited)
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 5
(Unaudited)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7-15
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Matters 16
Item 6. Exhibits and Reports on Form 8-K. 16-17
SIGNATURES 18
<PAGE>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Assets
Cash and due from banks...............................$ 192,713 $ 196,995
Federal funds sold.................................... 45,000 82,450
Investment securities held to maturity, fair value of
$204,760 and $257,213 in 1997 and 1996, respectively.. 204,254 255,277
Investment securities available for sale.............. 1,064,579 989,698
Loans, net of unearned income......................... 3,488,223 3,471,248
Less: Allowances for possible loan losses............ (45,911) (46,022)
Loans, net............................................ 3,442,312 3,425,226
Premises and equipment, net........................... 72,546 71,244
Due from customers on acceptances outstanding......... 773 940
Accrued interest receivable........................... 30,009 29,808
Other assets.......................................... 64,933 63,909
Total assets................................ $5,117,119 $5,115,547
Liabilities
Deposits:
Non-interest bearing deposits................$ 683,595 $ 715,563
Interest bearing:
Savings..............................1,911,488 1,835,476
Time ........................... 1,955,804 2,016,026
Total deposits............. 4,550,887 4,567,065
Federal funds purchased and securities sold under
repurchase agreements......................... 19,166 23,339
Treasury tax and loan account and other short-term
borrowings.................................... 27,764 17,202
Other borrowings....................................... 33,057 35,071
Bank acceptances outstanding........................... 773 940
Accrued expenses and other liabilities................. 48,986 41,546
Total liabilities............................$4,680,633 $4,685,163
Shareholders' Equity
Common stock, no par value, authorized 75,000,000
shares, issued 40,486,490 shares in 1997
and 40,449,671 in 1996,...................... 22,341 22,321
Surplus ........................... 238,821 238,540
Retained earnings..................................... 187,493 176,853
Unrealized gain (loss) on investment securities available
for sale, net of tax......................... (5,321) 259
443,334 437,973
Treasury stock, at cost (246,509 shares in 1997 and
272,093 shares in 1996)...................... (6,848) (7,589)
Total shareholders' equity................... 436,486 430,384
Total liabilities and shareholders' equity...$5,117,119 $5,115,547
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($ in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Interest Income
Interest and fees on loans............................. $ 71,452 $ 64,463
Interest and dividends on investment securities:
Taxable....................................... 15,262 18,049
Tax-exempt.................................... 2,818 3,370
Dividends..................................... 418 200
Interest on federal funds sold and other short term
investments................................... 1,543 1,453
Total Interest Income......................... 91,493 87,535
Interest Expense
Interest on deposits:
Savings....................................... 10,455 10,379
Time ..................................... 27,613 26,567
Interest on federal funds purchased and securities sold
under repurchase agreements................... 281 283
Interest on other short-term borrowings................ 218 160
Interest on other borrowings........................... 485 572
Total Interest Expense........................ 39,052 37,961
Net interest income.................................... 52,441 49,574
Provision for possible loan losses..................... 1,200 780
Net interest income after provision for possible
loan losses................................... 51,241 48,794
Non-Interest Income
Trust income........................................... 258 260
Service charges on deposit accounts.................... 2,909 2,761
Gains on securities transactions, net.................. 1,116 331
Fees from mortgage servicing........................... 1,126 1,015
Credit card income..................................... 2,538 474
Gains on sales of loans................................ 377 662
Other ..................................... 1,582 1,492
Total Non-Interest Income..................... 9,906 6,995
Non-Interest Expense
Salaries expense....................................... 11,269 10,526
Employee benefit expense............................... 2,911 3,022
FDIC insurance premiums................................ 208 717
Occupancy and equipment expense........................ 4,461 4,606
Credit card expense.................................... 4,076 496
Amortization of intangible assets...................... 849 763
Other ..................................... 5,625 5,505
Total Non-Interest Expense.................... 29,399 25,635
Income before income taxes............................. 31,748 30,154
Income tax expense..................................... 10,848 10,735
Net Income............................................. $ 20,900 $ 19,419
Net income per share................................... $ 0.50 $ 0.45
Weighted average shares outstanding.................... 42,235,562 43,190,719
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 20,900 $ 19,419
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
intangible assets 2,626 2,372
Amortization of compensation costs pursuant to
long term stock incentive plan.. 137 108
Provision for possible loan losses....... 1,200 780
Net amortization of premiums and discounts.. 502 943
Net gains on securities transactions........(1,116) (331)
Proceeds from sale of loans................. 7,209 8,688
Gains on sales of loans..................... (377) (662)
Proceeds from recoveries on charged-off loans 413 1,894
Net decrease in accrued interest receivable and
other assets....................... 1,785 6,559
Net increase in accrued expenses and
other liabilities 6,639 6,621
Net cash provided by operating activities: 39,918 46,391
Cash flows from investing activities:
Proceeds from maturing investment securities held
to maturity.................................18,096 8,313
Purchases of investment securities held to maturity (7,034) (998)
Proceeds from sales of investment securities
available for sale..........................29,206 23,667
Proceeds from maturing investment securities
available for sale..........................60,544 100,873
Purchases of investment securities available
for sale..................................(133,489) (92,551)
Purchases and originations of mortgage servicing rights (13) (438)
Net decrease in federal funds sold and other short
term investments............................37,450 51,925
Net increase in loans made to customers.............(25,529) (54,054)
Purchases of premises and equipment, net of sales....(3,079) (4,182)
Net decrease (increase) in due from customers on
acceptances outstanding..................... 167 (74)
Net cash (used in) provided by investing
activities: (23,681) 32,481
Cash flows from financing activities:
Net decrease in deposits.......................... (16,178) (93,210)
Net increase(decrease) in federal funds purchased
and other short term borrowings.......... 6,389 (5,634)
Advances of other borrowings...................... -- 20,000
Repayments of other borrowings.................... (2,014) (14)
Net (decrease)increase in bank acceptances outstanding (167) 74
Dividends paid to common shareholders............. (9,101) (9,197)
Addition of common shares to treasury............. -- (16,479)
Common stock issued, net of cancellations......... 552 26
Net cash used in financing activities:... (20,519 (104,434)
Net decrease in cash and due from banks.................... (4,282) (25,562)
Cash and due from banks at January 1....................... 196,995 198,857
Cash and due from banks at March 31........................$ 192,713 173,295
Supplemental cash flow disclosure:
Cash paid for interest on deposits and other
borrowings $ 39,084 37,643
Cash paid for federal and state income taxes......$ 86 900
Transfer of Midland securities held to maturity
to securities available for sale..................$ 39,833 --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The Consolidated Statements of Financial Condition as of March 31, 1997
and December 31, 1996, the Consolidated Statements of Income for the
three month periods ended March 31, 1997 and 1996 and the Consolidated
Statements of Cash Flows for the three month periods ended March 31,
1997 and 1996 have been prepared by Valley National Bancorp ("Valley"),
without audit. In the opinion of management, all adjustments (which
included only normal recurring adjustments) necessary to present fairly
Valley's financial position, results of operations, and cash flows at
March 31, 1997 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These consolidated financial
statements are to be read in conjunction with the financial statements
and notes thereto included in Valley's December 31, 1996 Annual Report
to Shareholders.
The Consolidated Statement of Financial Condition as of December 31,
1996 and the Consolidated Statements of Income and Cash Flows for the
three month period ended March 31, 1996 have been restated to include
the merger of Midland Bancorporation, Inc. on the close of business
February 28, 1997 in a transaction accounted for as a pooling of
interest.
2. Earnings Per Share
Earnings per share amounts and weighted average shares outstanding have
been restated to reflect the 5% stock dividend declared April 2, 1997
to Shareholders of record on April 30, 1997 and payable May 15, 1997.
Balances and share amounts included in Shareholders' Equity on the
Statement of Financial Condition have not been restated for the 5%
stock dividend or the increase in authorized common stock.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Recent Development
Effective as of the close of business on February 28, 1997, Valley consummated
its previously announced merger agreement with Midland Bancorporation, Inc.
("Midland"), parent of The Midland Bank and Trust Company ("Midland Bank"),
headquartered in Paramus, New Jersey. On December 31, 1996 Midland had total
assets of $438.9 million and deposits of $401.6 million, with 13 branches
located in Bergen County, New Jersey. The transaction was accounted for using
the pooling of interests method of accounting and resulted in the issuance of
approximately 3,775,000 shares of Valley common stock. Each share of common
stock of Midland was exchanged for 30 shares of Valley common stock.
Earnings Summary
Net income was $20.9 million, or $0.50 per share for the three month period
ended March 31, 1997 compared with $19.4 million or $0.45 per share for the
three month period ended March 31, 1996 (1996 amounts have been restated for the
Midland merger and earnings per share amounts have been restated to give effect
to a 5% stock dividend payable May 15, 1997). The annualized return on average
assets increased to 1.64% from 1.57%, while the annualized return on average
equity also increased to 19.34% from 17.93%, for the quarters ended March 31,
1997 and 1996, respectively.
This increase in net income is largely attributable to an increase in net
interest income of $2.9 million, offset by increased net expenses from the
Shop-Rite credit card program.
Net Interest Income
Net interest income is the largest source of Valley's operating income. Net
interest income on a tax equivalent basis increased to $54.1 million from $51.6
million for the quarter ended March 31, 1997 as compared to the quarter ended
March 31, 1996. The increase in net interest income is due primarily to
increased loan volume funded from the sale and maturities of investment
securities and growth in deposits, resulting in an increase in the net interest
margin to 4.48% for the quarter ended March 31, 1997 compared to 4.43% for the
same quarter in 1996.
Average interest earning assets increased $177.4 million in 1997, or 3.8% over
the 1996 amount. This increase was mainly the result of an increased volume of
credit card loans, automobile loans, commercial mortgages and commercial loans.
Average loans increased by $399.6 million or 13.1% over the 1996 amount. The
average rate on loans was negatively impacted by balances not paying interest
and the introductory below market interest rates offered on co-branded credit
cards. The increase in average loan volume caused interest income on loans for
1997 to increase by $7.0 million over 1996. Offsetting this increase, was a
decline in average taxable and tax exempt investment securities of $227.4
million or 15.1% from the amount in the portfolio during 1996.
Average interest-bearing liabilities grew 2.6% or $101.6 million. Deposit
growth, similar to the past few years, was held to a small increase due to
competitive factors and alternative investment opportunities for consumers.
Average demand deposits continued to grow and increased by $65.7 million or
10.9% over 1996 balances. Average savings deposits decreased by $9.5 million or
0.5%, while average time deposits increased $116.7 million or 5.9%.
<PAGE>
The following table reflects the components of net interest income for the three
months ended March 31, 1997 and 1996.
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND NET
INTEREST EARNINGS ON A TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
Average Avg Average Avg
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets
Loans (1) (2)...........$3,439,764 $ 71,634 8.33% $3,040,167 $ 64,680 8.51%
Taxable investments (3).......... 1,018,858 15,680 6.16 1,196,441 18,249 6.10
Tax-exempt investments (1) (3)... 255,104 4,336 6.80 304,877 5,184 6.80
Federal funds sold and other
short-term investments (1) 119,937 1,543 5.15 114,740 1,453 5.07
Total interest earning assets....$4,833,663 $ 93,193 7.71% $4,656,225 $ 89,566 7.69%
Allowance for possible loan
losses ..... (46,237) (45,360)
Unrealized loss on securities
available for sale...... (2,497) (258)
Cash and due from banks.......... 166,878 177,527
Other assets ...... 156,298 158,281
Total assets............$5,108,105 $4,946,415
Liabilities and Shareholders' Equity
Interest bearing liabilities
Savings deposits........$1,792,488 $ 10,455 2.33% $1,801,964 $ 10,379 2.30%
Time deposits........... 2,096,869 27,613 5.27 1,980,209 26,567 5.37
Total interest bearing
deposits........3,889,357 38,068 3.92 3,782,173 36,946 3.91
Federal funds purchased and securities
sold under repurchase agreements 26,237 281 4.28 25,517 283 4.45
Other borrowings................... 48,583 703 5.79 54,934 732 5.33
Total interest bearing liabilities3,964,177 39,052 3.94 3,862,624 37,961 3.93
Demand deposits................... 669,967 604,242
Other liabilities................. 41,706 46,424
Shareholders' equity.............. 432,255 433,125
Total liabilities and
shareholders' equity...5,108,105 $4,946,415
Net interest income (tax
equivalent basis)........ 54,141 51,605
Tax equivalent adjustment......... (1,700) (2,031)
Net interest income............... $ 52,441 $ 49,574
Net interest rate differential.... 3.77% 3.76%
Net interest margin (4)........... 4.48% 4.43%
</TABLE>
(1) Interest income is presented on a tax equivalent basis using a 35%
tax rate.
(2) Loans are stated net of unearned income, and include non-accrual loans.
(3) The yield for securities that are classified as available for sale is
based on the average historical amortized cost.
(4) Net interest income on a tax equivalent basis as a percentage of
earning assets.
<PAGE>
The following table demonstrates the relative impact on net interest income of
changes in volume of earning assets and interest bearing liabilities and changes
in rates earned and paid by Valley on such assets and liabilities.
CHANGE IN INTEREST INCOME AND EXPENSE ON A TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
1997 Compared to 1996
Increase (Decrease) (2)
Interest Volume Rate
(in thousands)
<S> <C> <C> <C>
Interest income:
Loans (1) ..........................$ 6,954 $ 8,346 $(1,392)
Taxable investments................................ (2,569) (2,732) 163
Tax-exempt investments (1)......................... (848) (846) (2)
Federal funds sold and other
short term investments...................... 90 68 22
3,627 4,836 (1,209)
Interest expense:
Savings deposits................................... 76 (55) 131
Time deposits...................................... 1,047 1,543 (496)
Federal funds purchased and
securities sold under
repurchase agreements....................... (24) 7 (31)
Other borrowings................................... (8) (89) 81
1,091 1,406 (315)
Net interest income..................................$ 2,536 $ 3,430 $ (894)
</TABLE>
(1) Interest income is adjusted to a tax equivalent basis using a
35% tax rate.
(2) Variances resulting from a combination of changes in volume and
rates are allocated to the categories in proportion to the
absolute dollar amounts of the change in each category.
Non-Interest Income
The following table presents the components of non-interest income for three
months ended March 31, 1997 and 1996.
NON-INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
(in thousands)
<S> <C> <C>
Trust income..................................... $ 258 $ 260
Service charges on deposit accounts 2,909 2,761
Gains on securities transactions, net 1,116 331
Fees from mortgage servicing..................... 1,126 1,015
Credit card income............................... 2,538 474
Gains on sales of loans.......................... 377 662
Other............................................ 1,582 1,492
Total................................... $9,906 $6,995
</TABLE>
Non-interest income continues to represent a considerable source of income for
Valley. Excluding gains on securities transactions, total non-interest income
amounted to $8.8 million for the quarter ended March 31, 1997 compared with $6.7
million for the quarter ended March 31, 1996.
<PAGE>
Fees from mortgage servicing increased by 10.9% from $1.0 million for the
quarter ended March 31, 1996 to $1.1 million for the quarter ended March 31,
1997. This reflects the increase in the size of the serviced portfolio.
Included in credit card income is merchant discount income and net interchange
fees. The increase in credit card income is the result of a co-branded credit
card program that began during the second quarter of 1996.
Gains on the sales of loans were $377 thousand for the three months ended March
31, 1997 compared to $662 thousand for the three months ended March 31, 1996.
The gains recorded are primarily from the sale of the guaranteed portion of SBA
loans.
The significant components of other non-interest income include safe deposit
rentals and gain on the sale of REO property. Other non-interest income
increased $90 thousand to $1.6 million for the three months ended March 31, 1997
in comparison to the same period in 1996.
Non-Interest Expense
The following table presents the components of non-interest expense for the
three months ended March 31, 1997 and 1996.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
(in thousands)
<S> <C> <C>
Salary expense........................ $ 11,269 $ 10,527
Employee benefit expense.............. 2,911 3,022
FDIC insurance premiums............... 208 717
Occupancy expense..................... 4,461 4,605
Credit card expense................... 4,076 496
Amortization of intangible assets..... 849 763
Other................................. 5,625 5,505
Total........................... $ 29,399 $ 25,635
</TABLE>
Non-interest expense totalled $29.4 million for the three month period ended
March 31, 1997, an increase of 14.7% from the 1996 level. The largest component
of non-interest expense is salaries and employee benefit expense which totalled
$14.2 million in 1997 compared to $13.5 million in 1996. At March 31, 1997,
full-time equivalent staff was 1,560 compared to 1,525 at March 31, 1996.
The efficiency ratio measures a bank's gross operating expense as a percentage
of fully- taxable equivalent net interest income and other non-interest income
without taking into account security gains and losses and other non-recurring
items. Valley's efficiency ratio for the three months ended March 31, 1997 is
46.3%, one of the lowest in the industry, compared with an efficiency ratio for
the year 1996 of 46.7%. Valley strives to control its efficiency ratio and
expenses as a means of producing increased earnings for its shareholders.
Valley's deposit base consists of both BIF and SAIF deposits. BIF deposits,
which represent approximately 70% of the insurable deposit base, were exempt
from premiums in 1996. As a result of the Funds Act enacted in 1996, Valley is
paying insurance premiums on both its BIF and SAIF deposits beginning in 1997,
however, the revised rate structure resulted in a decline in the premium
expense.
Credit card expense includes cardmember rebates, processing expenses, and fraud
losses. The increase in credit card expenses is directly attributable to the
co-branded credit card that VNB began issuing during the second quarter of 1996.
<PAGE>
Amortization of intangible assets increased to $849 thousand for the three
months ended March 31, 1997 from $763 thousand for the same period in 1996,
representing an increase of $86 thousand or 11.3%. The majority of this increase
resulted from the increase in amortization of purchased mortgage servicing
rights.
The significant components of other non-interest expense include advertising,
professional fees, postage, telephone expense and REO expense which total
approximately $2.7 for the three months ended March 31, 1997.
Income Taxes
Income tax expense as a percentage of pre-tax income was 34.2% for the three
months ended March 31, 1997 compared to 35.6% for the same period in 1996. The
decreased percentage is attributable to a reduction in state income taxes.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
Management has prepared for its use an income simulation model to project future
net interest income streams in light of the current gap position. Management has
also prepared alternative scenarios to measure levels of net interest income
associated with various changes in interest rates. According to the model, an
interest rate increase or decrease of 100 basis points resulted in an impact on
net interest income over the next twelve months of less than 1-1/2%, while an
increase in interest rates of 300 basis points would impact net interest income
by about 1-1/2%. These amounts are consistent with the target levels contained
in Valley's Asset/Liability Policy, which permits a maximum impact in a rising
or falling interest rate scenario of plus or minus 5% of net interest income.
Management cannot provide any assurance about the actual effect of changes in
interest rates on Valley's net interest income.
At March 31, 1997, rate sensitive assets exceeded rate sensitive liabilities at
the 0-3 month interval and resulted in a positive gap of $688.2 million or a
ratio of 1.68:1. The total positive gap repricing within 1 year as of March 31,
1997 is $313.3 million or 1.19:1. Management does not view these amounts as
presenting an unusually high risk potential, although no assurances can be given
that Valley is not at risk from rate increases or decreases.
Liquidity
Liquidity measures the ability to satisfy current and future cash flow needs as
they become due. Maintaining a level of liquid funds through asset-liability
management seeks to ensure that these needs are met at a reasonable cost. On the
asset side, liquid funds are maintained in the form of cash and due from banks,
federal funds sold, investments securities held to maturity maturing within one
year, securities available for sale and loans held for sale. At March 31, 1997,
liquid assets amounted to $1.3 billion, unchanged from December 31, 1996. This
represents 27.4% and 27.2% of earning assets, and 25.7% and 25.5% of total
assets at March 31, 1997 and year-end 1996, respectively.
On the liability side, the primary source of funds available to meet liquidity
needs is Valley's core deposit base, which generally excludes certificates of
deposit over $100 thousand. Core deposits averaged approximately $3.30 billion
and $3.23 billion for the three months ended March 31, 1997 and year ended
December 31, 1996, respectively, representing 68.2% and 67.2% of average earning
assets. Short term borrowings through Federal funds lines and Federal Home Loan
Bank ("FHLB") advances and large dollar certificates of deposit, generally those
over $100 thousand, are used as supplemental funding sources. As of March 31,
1997, Valley had outstanding advances of $32.5 million with the FHLB. Additional
liquidity is derived from scheduled loan and investment payments of principal
and interest, as well as prepayments received. Proceeds from the sales of
investment securities available for sale were $29.2 million,
and proceeds of $78.6 million were generated from investment maturities.
Purchases of investment securities were $140.5 million. Short term borrowings
and certificates of deposit over $100 thousand amounted to $637.1 million and
$628.3 million, on average, for the three months ended March 31, 1997 and year
ending December 31, 1996, respectively.
Valley's cash requirements consist primarily of dividends to shareholders. This
cash need is routinely satisfied by dividends collected from its subsidiary
bank. Projected cash flows from this source are expected to be adequate to pay
dividends, given the current capital levels and current profitable operations of
its subsidiary.
Investment Securities
As of March 31, 1997 Valley had $1.1 billion of securities available for sale
compared with $990 million at December 31, 1996. These securities are recorded
at their fair value on an aggregate basis. As of March 31, 1997 the investment
securities available for sale had an unrealized loss of $5.3 million, net of
deferred taxes, compared to an unrealized gain of $259 thousand, net of deferred
taxes, at December 31, 1996. This change was primarily due to a decrease in
market values, resulting from increased interest rates. These securities are not
considered trading account securities, which may be sold on a continuous basis,
but rather securities which may be sold to meet the various liquidity and
interest rate requirements of Valley.
<PAGE>
Loan Portfolio
The following table reflects the composition of the loan portfolio as of March
31, 1997 and December 31, 1996.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Commercial $ 458,355 $ 466,580
Total commercial loans 458,355 466,580
Construction 84,694 87,486
Residential mortgage 923,009 924,764
Commercial mortgage 813,089 786,916
Total mortgage loans 1,820,792 1,799,166
Home equity 171,037 174,534
Credit card 137,751 149,494
Automobile 801,513 798,436
Other consumer 99,109 83,555
Total consumer loans 1,209,410 1,206,019
Less: unearned income (334) (517)
Loans, net of unearned
income $3,488,223 $3,471,248
As a percent of total loans:
Commercial loans 13.1% 13.5%
Mortgage loans 52.2 51.8
Consumer loans 34.7 34.7
Total loans 100.0% 100.0%
</TABLE>
During the second quarter of 1996, Valley announced and began issuing a
co-branded credit card, the ShopRite Mastercard. Of the $137.8 million of credit
card loans outstanding at March 31, 1997, approximately $119.5 million are the
result of this co-branded credit card program.
Valley National Bank entered into an agreement with an affiliate of the State
Farm Insurance Company under which, on an experimental basis, participating
State Farm Insurance agents will act as agents for Valley in assisting potential
borrowers in obtaining home mortgage financing from Valley National Bank. State
Farm will assist Valley by publicizing Valley's home mortgage products in test
regions and educating agents about the products. This program merely expands
upon a long-standing relationship between the parties.
This is an experimental program and it is not anticipated that the program will
have a material impact on the financial statements of Valley National Bancorp
for the foreseeable future.
Non-Performing Assets
Non-performing assets include non-accrual loans and other real estate owned
(OREO). Non- performing assets continued to decrease, and totalled $14.2 million
at March 31, 1997 compared with $16.9 million at December 31, 1996, a decrease
of $2.7 million, or 16.2%. Non- performing assets at March 31, 1997 and December
31, 1996, respectively, amounted to 0.41% and 0.49% of loans and other real
estate owned.
<PAGE>
Loans 90 days or more past due and not included in the non-performing category
totaled $12.0 million at March 31, 1997, compared to $10.2 million at December
31, 1996. These loans are primarily residential mortgage loans, commercial
mortgage loans and commercial loans which are generally well-secured and in the
process of collection.
The following table sets forth non-performing assets and accruing loans which
are 90 days or more past due as to principal or interest payments on the dates
indicated, in conjunction with asset quality ratios for Valley.
LOAN QUALITY
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(in thousands)
<S> <C> <C>
Loans past due in excess of
90 days and still accruing..... $ 11,967 $ 10,166
Non-performing loans............. $ 10,201 $ 13,182
Other real estate owned.......... 3,987 3,750
Total non-performing assets.... $ 14,188 $ 16,932
Troubled debt restructured loans. $ 5,335 $ 5,363
Non-performing loans as
a % of loans................... 0.29% 0.38%
Non-performing assets as a %
of loans plus other real
estate owned................... 0.41% 0.49%
Allowance as a % of loans........ 1.32% 1.33%
Allowance as a % of
non-performing assets.......... 323.59% 271.80%
</TABLE>
Asset Quality and Risk Elements
At March 31, 1997, the allowance for loan losses amounted to $45.9 million or
1.32% of loans, net of unearned income, as compared to $46.0 million or 1.33% at
year-end 1996.
The allowance is adjusted by provisions charged against income and loans
charged-off, net of recoveries. Net loan charge-offs were $1.3 million for the
three months ended March 31, 1997 compared with net recoveries of $444 thousand
for the three months ended March 31, 1996.
Capital Adequacy
A significant measure of the strength of a financial institution is its
shareholders' equity, which should expand in close proportion to asset growth.
At March 31, 1997, shareholders' equity totalled $436.5 million or 8.5% of total
assets, compared with $430.4 million or 8.4% at year-end 1996. Valley has
achieved steady internal capital generation throughout the past five years.
Included in shareholders equity at March 31, 1997 is a $5.3 million unrealized
loss on investment securities available for sale, net of tax, compared to an
unrealized gain of $259 thousand at December 31, 1996.
Valley's capital position at March 31, 1997 under risk-based capital guidelines
was $437.4 million, or 12.6% of risk-weighted assets, for Tier 1 capital and
$481.0 million, or 13.8% for Total risked-based capital. The comparable ratios
at December 31, 1996 were 12.2.% for Tier 1 capital and 13.5% for Total
risk-based capital. Valley's ratios at March 31, 1997 are
<PAGE>
above the "well capitalized" requirements, which require Tier I capital of at
least 6% and Total risk-based capital of 10%. The Federal Reserve Board requires
"well capitalized" bank holding companies to maintain a minimum leverage ratio
of 5.0%. At March 31, 1997 and December 31, 1996, Valley was in compliance with
the leverage requirement having a Tier 1 leverage ratio of 8.57% and 8.35%,
respectively.
Book value per share amounted to $10.33 at March 31, 1997 compared with $10.20
per share at December 31, 1996.
The primary source of capital growth is through retention of earnings. Valley's
rate of earnings retention, derived by dividing undistributed earnings by net
income, was 51.9% for the three month period ended March 31, 1997, compared to
52.8% for the three month period ended March 31, 1996. Cash dividends declared
amounted to $.24 per share for the quarter ended March 31, 1997, equivalent to a
dividend payout ratio of 48.1%, compared to 47.2% for the same quarter 1996.
Valley declared a 5% common stock dividend on April 2, 1997 to shareholders of
record on April 30, 1997, payable May 15, 1997. The annual dividend rate will be
increased to $1.10 per share after the stock dividend. The cash dividend
increase will be payable quarterly beginning on July 1, 1997. Valley's Board of
Directors continues to believe that cash dividends are an important component of
shareholder value and that at its current level of performance and capital,
Valley expects to continue its current dividend policy of a quarterly
distribution of earnings to its shareholders.
Recent Accounting Pronouncements
In June, 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are based
on consistent application of a financial components approach that focuses on
control. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 is effective for transfers
that occur after December 31, 1996, and has been applied prospectively. The
adoption of SFAS No. 125 did not have a material effect on the financial
position or results of operation of Valley.
In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which specifies the computation, presentation, and
disclosure requirements for earnings per share (EPS). SFAS No. 128 was issued to
simplify the computation of EPS and to make the U.S. standard more compatible
with the EPS standards of other countries and that of the International
Accounting Standards Committee: (IASC). It replaces Primary EPS and Fully
Diluted EPS with Basic EPS and Diluted EPS, respectively. It also requires dual
presentation of Basic EPS and Diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the Basic EPS computation to the numerator
and denominator of the Diluted EPS computation. Basic EPS, unlike Primary EPS,
excludes all dilution while Diluted EPS, like Fully Diluted EPS, reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. SFAS
128 is effective for financial statements for both interim and annual periods
after December 15, 1997. Earlier application is not permitted. After adoption,
all prior period EPS data presented shall be restated (including interim
financial statements, summaries of earnings and selected financial data) to
conform with SFAS 128.
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
a) On April 2, 1997 the Annual Meeting of Shareholders of Valley
National Bancorp was held. The Shareholders voted upon the election
of 19 persons, named in the Proxy Statement, to serve as directors
of the Corporation for the ensuing year. All directors were elected
and there was no solicitation in opposition to management's nominees
as listed in the proxy statement. The following is a list of
directors elected at the Annual Meeting with the number of votes
"For" and "Withheld". There were no abstentions.
Number of Votes
Name For Withheld
Andrew Abramson 26,344,035 183,605
Pamela Bronander 26,338,608 189,032
Joseph Coccia, Jr. 26,344,035 183,605
Austin C. Drukker 26,343,308 184,332
Willard L. Hedden 26,187,462 340,176
Graham O. Jones 26,343,850 183,790
Walter H. Jones, III 26,329,883 197,757
Gerald Korde 26,344,035 183,605
Gerald H. Lipkin 26,330,272 197,368
Joleen Martin 26,342,703 184,937
Robert E. McEntee 26,342,159 185,481
William McNear 26,184,627 343,011
Sam P. Pinyuh 26,341,354 186,286
Robert Rachesky 26,339,960 187,679
Barnett Rukin 26,337,930 189,710
Peter Southway 26,270,035 257,605
Richard F. Tice 26,341,694 185,946
Leonard J. Vorcheimer 26,342,703 184,937
Joseph L. Vozza 26,341,354 186,286
Item 5. Other Matters
a) The Board of Directors approved a five percent common stock
dividend on April 2, 1997. The new stock will be issued May
15, 1997 to shareholders of record as of April 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(3) Article of Incorporation and Bylaws
Restated Certificate of Incorporation of the
Registrant dated April 30, 1997
(10) Material Contracts
No material contracts entered into or becoming
effective in the Reporting Period.
(27) Financial Data Schedule
b) Reports on Form 8-K
1) Filed March 13, 1997 to report the merger of Midland
Bancorporation, Inc. into Valley National Bancorp
effective as of the close of business on
February 28, 1997.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALLEY NATIONAL BANCORP
(Registrant)
Date: May 14, 1997 /s/ Peter Southway
PETER SOUTHWAY
VICE CHAIRMAN
Date: May 14, 1997 /s/ Alan D. Eskow
ALAN D. ESKOW
SENIOR VICE PRESIDENT
FINANCIAL ADMINISTRATION
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
3 Restated Certificate of Incorporation of the
Registrant dated April 30, 1997.
EXHIBIT 3
AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
VALLEY NATIONAL BANCORP
Valley National Bancorp, a New Jersey corporation, pursuant to N.J.S.A.
14A:7-15.1, does hereby certify as follows:
(a) The name of the corporation is: Valley National Bancorp
(the "Corporation").
(b) A five percent (5%) stock split was declared by the Corporation on
April 2, 1997, pursuant to which one share of Common Stock, no par value, will
be distributed for each twenty (20) shares of Common Stock, no par value, held
by shareholders on the record date of April 30, 1997, effective April 30, 1997.
A resolution approving the share division was adopted by the Board of Directors
of the Corporation at its regular meeting held on the 2nd day of April, 1997.
(c) The share division will not adversely affect the rights or preferences
of the holders of outstanding shares and will not result in the percentage of
authorized shares that remains unissued after the share division exceeding the
percentage of authorized shares that was unissued before the share division.
(d) There were issued and outstanding, as of the record date of April 30,
1997, 40,240,903 shares of Common Stock without par value which are the shares
subject to the share division. As a result of the share division in which one
share will be issued for every twenty (20) shares issued and outstanding, those
40,240,903 will be divided into 42,252, 948 shares issued and outstanding.
(e) The Corporation is hereby amending its certificate of incorporation in
connection with the share distribution as follows:
The existing "Article V" is deleted in its entirety. In lieu thereof, the
following Article V is added to the certificate of incorporation:
"The Corporation is authorized to issue 78,750,000 shares of common stock
without nominal or par value."
(f) The share division and amendment are to become effective as of
April 30, 1997.
IN WITNESS WHEREOF, Alan D. Eskow, Senior Vice President and Corporate
Secretary of Valley National Bancorp has executed this Certificate on behalf of
Valley National Bancorp on this 29th day of April, 1997.
VALLEY NATIONAL BANCORP
By: /s/ Alan D. Eskow
ALAN D. ESKOW
Senior Vice President and
Corporate Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 192,713
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 45,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,064,579
<INVESTMENTS-CARRYING> 204,254
<INVESTMENTS-MARKET> 204,760
<LOANS> 3,488,223
<ALLOWANCE> 45,911
<TOTAL-ASSETS> 5,117,119
<DEPOSITS> 4,550,887
<SHORT-TERM> 46,930
<LIABILITIES-OTHER> 49,759
<LONG-TERM> 33,057
0
0
<COMMON> 22,341
<OTHER-SE> 414,145
<TOTAL-LIABILITIES-AND-EQUITY> 5,117,119
<INTEREST-LOAN> 71,452
<INTEREST-INVEST> 18,498
<INTEREST-OTHER> 1,543
<INTEREST-TOTAL> 91,493
<INTEREST-DEPOSIT> 38,068
<INTEREST-EXPENSE> 39,052
<INTEREST-INCOME-NET> 52,441
<LOAN-LOSSES> 1,200
<SECURITIES-GAINS> 1,116
<EXPENSE-OTHER> 29,399
<INCOME-PRETAX> 31,748
<INCOME-PRE-EXTRAORDINARY> 31,748
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,900
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 4.48
<LOANS-NON> 10,201
<LOANS-PAST> 11,967
<LOANS-TROUBLED> 5,335
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 46,022
<CHARGE-OFFS> 1,723
<RECOVERIES> 412
<ALLOWANCE-CLOSE> 45,911
<ALLOWANCE-DOMESTIC> 37,274
<ALLOWANCE-FOREIGN> 34
<ALLOWANCE-UNALLOCATED> 8,603
